Money was first created as a
symbolic representation for material things. Production of grain or discovery of
gold were acts that served as the basis for the creation of more commodity
money. The symbol served as a convenient medium for exchange of the commodities
they represented over longer distances and periods of time. Indirect
transactions supplanted direct barter exchanges. Most probably in the initial
stages, only a few commonly traded commodities such as food and clothing were
valued and exchanged in terms of money. Barter exchanges would have continued
for many transactions. Many less commonly traded goods and services, such as a
day of manual labor, a mid-wife’s services, a teacher’s knowledge or a
physician’s medicine given in exchange for a certain quantity of food, may not
have been assigned a monetary value at all. Over time, the number and categories
of goods and services valued in terms of money increased until it saturated the
full range of things and activities in the society.

This process of assigning
monetary value to more and more goods and services facilitated more and more
transactions, until virtually anything of intrinsic value to someone could be
exchanged. It reached the point of saturation when husbands were valued in terms
of the dowry payable by the bride’s family and even religious indulgences to
eradicate past sins were priced in terms of money and available for sale. The
‘monetization’ of every social activity acted as a powerful stimulus for the
development of other social activities. Assigning monetary value to the services
of teachers and physicians encouraged more individuals to pursue knowledge in
these fields and dedicate their time offering these services. Art began to
flourish when it acquired monetary value during the Renaissance when every
wealthy family sought the services of an artist to paint their portraits and
fill their homes with other works of art. Money as a thing became fully
integrated with society when everything that was valued by members of the
society could be expressed and exchanged in terms of money value.

Evolution of money as transactions

Money began as a symbolic
medium to facilitate transactions. When this function became saturated, the
nature of money evolved. Commodity money evolved into credit money. Credit money
is money created by providing credit that is repayable at a future date.
Merchants who traded in commodities created promissory notes or bills of
exchange as a form of deferred payment in order to facilitate a greater number
of transactions. These bills of exchange were accepted in lieu of payment at the
time of sale and often passed on by the seller to bankers or other merchants.
The bills were backed by the commodities which were traded, but not only that.
In order for a trader to extent credit to another, it was also necessary for the
seller to ensure that the buyer had the capacity to resell the merchandise he
purchased. In other words, the bills were backed by confidence in the capacity
of the buyer to conduct additional transactions. This capacity depended on each
trader’s organization – his managerial abilities and his network of
customers. Of equal importance, these bills were also backed by personal
trust and confidence in the buyer, his reputation for commercial success and
for integrity in meeting business commitments.

As commodity money based on
transactions evolved when all possible goods and services were assigned monetary
value, the evolution of credit money depended on the development of two higher
elements -- organization and trust. The more organized trade became, the greater
the number and speed of transactions that could occur and the more the money
that was created in the form of credit. So too, the more reliable the individual
traders were, the greater the amount of credit that could be extended to them.
These combined to multiply the number of transactions to the point of
saturation.

Transactions became more
organized when each element and aspect of trade was subjected to systematic
functioning, such as maintenance of accurate and detailed records regarding
inventories, purchases and sales; standardization of weights, measures,
quantities, packaging, formats and procedures for issuance and collection of
bills; underwriting to guarantee the bills; commercial warehousing for storage
and hypothecation of goods; creation of permanent markets at specific locations
for exchange; merchant bankers to finance transactions; commercial laws, police
and a judiciary for law enforcement, etc. The organization of insurance made it
possible for traders and lenders to secure the cargos they invested in against
acts of nature or acts of war, thus encouraging trade with more distant lands
and under less secure conditions. The organization of merchant banking made it
possible to conduct commercial transactions over greater distances by relying on
the professional knowledge and reputation of bankers to substitute for personal
involvement of the parties concerned. The organization of laws and judiciary
raised confidence in the validity and enforceability of contracts and promissory
notes. The organization of wholesalers and distribution increased the demand for
transactions by increasing market penetration.

Each new element of
organization increased the capacity and propensity for transactions until they
reach a saturation point, making possible exchanges between every field and type
of activity over greater and greater distances and longer spans of time, thus
more fully integrating all these diverse activities with one another. Trade,
banking, insurance, manufacturing and retailing were mutually interdependent
activities that developed in unison as the linkages between them became stronger
and better organized. So also, commercial transactions grew more closely
integrated with non-economic activities. The capacity to maintain standing
armies and conduct military campaigns was enhanced by better access to munitions
and other supplies from commercial sources. Money made it possible for a moving
army to procure these goods from local traders even in distant lands.
Governments too grew more dependent on traders and bankers for stability and
governance. The English [[tally]] was a form of credit money created by the
Treasury as a promissory note for future tax collections, employed as a form of
currency to discharge the financial obligations of the crown, and widely
accepted in commercial trade. The saturation of transactions was made possible
by the development of new organizations which more fully linked and integrated
diverse activities in the society.

Evolution of money as organization

As emphasis had gradually
shifted from money backed by things to money backed by transactions, at a
further stage it gradually and imperceptivity evolved from money as transaction
to money as organization. In the first stage, money was created purely on the
basis of the material objects that backed it. In the second stage, it was
created on the basis of the transactions involving these objects. In the third
stage, it was created on the basis of the organizations that facilitated these
transactions.

At each of these stages, the
previous basis for money continued to be operative, but it was no longer the
essential or sufficient basis for further money creation. Money creation based
on transactions is still backed by goods and services, but a new dimension is
added by the temporary creation of credit money during the time interval between
sale and payment. Money based on organization continues to be backed by
transactions, either in trade or in lending, but a new dimension is added –
money is created on the basis of the permanent existence of the organization
rather than on the transient existence of individual transactions. Money thereby
gains a greater life span, greater separation from any specific object or
action, and a greater sense of permanence.

The stage of money as
organization is most clearly identified by the emergence of modern commercial
banking. For while merchant bankers create money on the basis of transient
transactions, the commercial bankers create money on the basis of the bank’s
perceived strength and stability as its organization. That strength is measured
by its capacity to attract depositors and leverage those deposits to issue and
recollect loans to borrowers for a profit. The goldsmith bankers created money
in the form of goldsmiths’ receipts that were apparently but only partially
backed by gold. The creation of additional money was made possible by the
perceived stability and integrity of the organization that issued the receipt.
In the 18th and 19th centuries, commercial bankers created
money in the form of bank notes – promissory notes redeemable in gold or silver
– that were only partially backed by actual reserves of precious metal. Their
capacity to do so depended on their organizational abilities to attract
depositors and viable borrowers, to provide safe storage for those deposits, to
maintain accurate accounts, and to enforce repayment of loans by legal or other
means.

The maturation of money
based on organization stimulated greater production of primary commodities,
increased the type and number of transactions that occurred and vastly
multiplied the amount of money in circulation. The organization of money helped
the society more fully exhaust its capacity for production and transactions. The
shift from barter to commodity money facilitated the expansion of trade by
eliminating the required for a coincidence of needs between seller and buyer. So
too the shift from trade credit to bank credit facilitated a further expansion
of commercial transactions by eliminating the requirement for sellers to have
intimate knowledge of each buyer who applied for credit. While trade credits
depended largely on personal acquaintance between the buyer and seller, bank
credit required only that the banker have intimate knowledge and confidence in
those that borrowed. The money they borrowed could be used for any number of
different commercial transactions with any number of sellers.

As the organization of trade
eventually gave rise to the emergence of money as an organization, the
development of money at this level became saturated and integrated with all
other aspects of society by a full exploitation of the potentials of
organization. The organization of money matured as banking became subject to
legal control, standardized norms and closer regulation, and standardized
banknotes. The financial strength of banks became subject to independent
monitoring and measurement. Legal procedures and collection agencies developed
to promote more effective recollection of loans. Mechanisms evolved for
acceptance and collection of checks drawn on other banks. At a later stage
measures such as central bank regulation and depositor’s insurance were
introduced.

Simultaneously with this
fuller development of money as organization, money became more closely
integrated with other aspects of social life. The invention of the mortgage as a
new monetary instrument served as a powerful stimulus for development of real
estate, construction and residential housing. The issuance of industrial loans
stimulated the commercialization of agriculture and expansion of manufacturing
as well as investment in infrastructure. The creation of stock exchanges spurred
development of entrepreneurship in trade and industry and provided capital for
investment in the development and application of new technologies. These
developments in term spurred demand for people with more formal education and
vocational training. Education, which had earlier been considered a cultural
endowment, was increasingly demanded as a condition for employment and assigned
monetary value in terms of one’s salary scale, thus serving as a stimulus for
expansion of education at all levels.

Evolution of money as trust

Trust has been an important
factor in each stage of the evolution of money. Although transactions are based
on the commodities exchanged and the organization that facilitates transactions,
the creation of credit money based on these transactions always involved a
significant element of trust between buyer and seller. The buyer needed to have
confidence in the quality and quantity of goods supplied; the seller in the
capacity and willingness of the buyer to pay at some designated future date.

Trust became a much more
important factor as the basis for money creation evolved from transactions to
organization. At this stage, the commodities exchanged and even the individuals
involved in the transactions become secondary. Primary reliance is placed on the
stability, capacity, reliability and integrity of the organizations that support
those transactions. That is why from earliest times organizations placed great
emphasis on constructing physical premises which denoted size, strength,
permanence, and financial soundness, enlisting distinguished members of society
as their customers and directors, maintaining public visibility through
advertising, and fostering influential social relationships.

The money created by banks
was partially backed by the gold, silver and other assets controlled by the
bank, but only partially. Banks leveraged those assets in some cases up to 10 or
15 times or more. Their organizational and managerial capabilities serves as
partial backing for this multiplication. But the entire operation was based on a
subtle foundation of trust and public confidence. If for any reason a loss of
trust led the public to suddenly demand redemption of their deposits and bank
notes in terms of species, no bank would be able to fully meet that demand.
Public trust serves as the very real foundation for the creation of money. The
same applied to trust in coins or currency issued by governments. Where the gold
or silver content of a coin came under question, acceptance of coins declined.
Where governments issued excessive quantities of paper money, as the American
and French did to finance their respective revolutions, acceptance of the paper
as payment rapidly diminished. Wherever the public comes to believe that a
particular currency note is counterfeit, that currency loses its capacity to
serve as money even if it is actually legitimate Government Issue.

Trust underpins every
dimension and aspect of the organization of money. Development of money as
organization becomes fully saturated only when trust and confidence are elevated
to perfection. At this point they give birth to the next level of money, money
for which the principle backing is trust itself. The phenomenal spread of credit
cards and credit card money in recent decades is a dramatic example of the
creation of trust-based money backed by perfect organization. Credit card money
depends on the trust of the card issuing bank in the card holder, on the trust
of card accepting merchants in the credit card system, on trust in the system
for credit monitoring and the legal system to enforce collections. An elaborate
organizational edifice has been put in place to create this trust. It has
replaced trust in the individual with trust in the system. The bank that issues
a card does so based on trust in the information provided by national credit
monitoring systems to identify reliable individuals who maintain a good credit
standing. Note that the evaluation is based on reliable information regarding
the credit and repayment behavior of the recipients not on their levels of
income or wealth. The merchant who accepts a credit card as means of payment
does so based on trust in the credit verification system operated by
organizations such as Visa or MasterCard, not on personal knowledge of either
the buyer or even of the bank that has issued the credit card. So too, the
creation of other forms of money such as bonds and stocks and mortgage-backed
securities all rely ultimately on trust in systems, institutions and laws.

Trust is taken to the
highest level in the creation of pure fiat money created by national
governments, which is the principle form of currency today. Fiat money is not
backed by any specific commodity or transaction, personal relationship or
organization. Rather it is backed by the totality of commodities, transactions
and organizations in the society. It is an expression of trust and confidence in
the productive capacities, legal, political, economic and social institutions of
the nation that issues it and the international community of which it is a
part.

The saturation of
trust-based money exponentially multiplies the scope for money creation. The
institution of money extends itself and begins to saturate even the lower levels
of the society where is has previously had only limited access. For example,
money is created in the form of micro-credit to impoverished families previously
outside the scope of the formal credit system. These borrowers utilize loans to
produce tradable commodities and transact exchanges. In some cases micro-credit
organizations achieve a higher levels of repayment on their loans than normal
commercial banks. Simultaneously, money markets, monetary institutions and
financial transactions are evolving from the national to the global level. The
US dollar has subconsciously emerged as a de facto world currency and the
Euro is consciously evolving as an even more inclusive and representative global
money.

Saturation of trust-based
money is also promoting an unprecedented integration between money and other
aspects of social existence. The most dramatic expression of this integration is
represented by the Internet. The Internet links people from all over the world
together with every field of human activity for the purpose of communication and
exchange of information. But the integration of money with the internet makes it
possible to link all these people and activities with one another at the level
of transactions as well. Producers or publishers of audio, video or written
material can sell it to anyone in the world. Individuals with marketable skills
for translation, technical writing, design, research or interpersonal relations
can offer those skills to the global market. Advertisers can reach every
potential consumer. Investors can buy and sell any commodity. Any individual
located anywhere in the world can buy or sell used books, extra furniture,
antiques, homemade products or collectibles from any other individual, thereby
multiplying the number of potential transactions infinitely. E-bay, one of the
largest individual transaction sites, has more than 212 million registered users
who conducted transactions valued at $50 billion in 2006. We readily attribute
these marvels to the advent of Internet technology, but it is the integration of
money and the Internet that makes many of them possible.

The human value of money

Developing countries are
still largely in the stage where their development occurs through the evolution
and expansion of social organizations, though factors from the previous and
subsequent stages are certainly active. The most economically-advanced nations
have matured to a level at which trust has become the prime mover for further
development. This stage will reach maturation and evolve into a still more
advanced stage of money creation when the trust and confidence now extended to
prominent social organizations is extended to every individual citizen. The
proliferation of credit cards among consumers, the extension of medical and
unemployment insurance to workers, social welfare benefits for the disadvantaged
and elderly are a few early expressions of this evolutionary trend.

Money
was invented by human beings. Regardless of what it is ‘backed’ by, the value of
money depends on human aspirations, human perceptions, human productive
capacities, human ideas, beliefs, attitudes and values. Money has absolutely
no objective existence or value independent of human beings. It is a
subjective creation of the human imagination projected externally and given
objective form as coin, currency, credit card, etc. The ultimate basis for money
is not commodity, transaction or organization. Money is based on the productive
capacities, needs and aspirations of every human being.

As
society has learned to ‘monetize’ commodities, transactions, organizations and
even this nebulous perception called trust, it will ultimately learn to fully
value the productive and non-productive capacities of each and every individual
human being and create new forms of money that are ‘backed’ by that most
precious of all our assets. This evolutionary transition will be accomplished by
pioneering individuals who fully perceive their inherent value as human beings
and discover it in all those who constitute the human collective. These
individuals will acquire an unlimited capacity to multiply money for themselves
and an unlimited capacity to generate prosperity for the society of which they
are an inseparable part.

Strategy for Evolution

We have
seen that at each stage of the evolution of money, progress to the next level
has been achieved by fully saturating activities at that stage, fully
integrating money with all other social activities at that level, and striving
to bring into the present level the predominant characteristics of the next
level that has yet to fully emerge. Thus the transition from money as
transaction to money as organization was achieved by a horizontal expansion to
cover every conceivable type of commercial exchange, an integration of economic
transactions with social, political and even religious activities, and a
striving to apply the principle of organization to every aspect of money
transactions. So too, the transition from money as organization to money as
trust involves a similar process of saturation, integration and application of
the higher principle of trust in the lower principle of organization.

Thus,
we arrive at a strategy that can be consciously applied to accelerate the
evolution of money to the level of the human individual. It can be done by fully
exhausting the potentials for building and extending trust as a principle for
money creation. Extending trust to the lowest level consumer and extending the
organizational basis for trust from the national to the global level will
accomplish this. Next it involves fully integrating trust-based money with every
other human activity. The internet is emerging as the ideal organizational
mechanism for this purpose. Trust is already an established principle for
internet-based transactions such as shareware as well as for non-commercial
transactions such as editorial contributions to Wikipedia, which in the absence
of this system would require an expenditure of tens of millions of dollars. The
emergence of human-based money requires the full development of every human
being. The internet is also a powerful medium for that development. It can
commence by making accessible free, world-class education to every individual.
Individuals can apply this strategy by developing their own honesty, integrity
and trustworthiness to the highest possible level and by extending that trust to
the entire network of human relationships which constitute their society.